Aluminum tariffs turn off some potential 'buck a beer' brewers

On Tuesday, Ontario Premier Doug Ford announced the roll out of the buck-a-beer plan, which gives brewers in the province the opportunity to sell beer for a loonie, lowering the minimum price from $1.25 to $1. The plan, a campaign promise of Ford’s, invites all 260 breweries in the province to take part and any beer with an alcohol volume below 5.6 per cent will be accepted.

“It’s costing the taxpayers zero,” Ford announced at Barley Days Brewery in Picton, Ont.

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Barley Days Brewery, which opened in 2007, was the first craft brewery in Prince Edward County and it was general manager Kyle Baldwin (who was born and raised in the county) that decided to sign up for the opportunity.

“We’re trying to have fun with it and what better way to get exposure than to have a dollar beer branded with Barley Days in the LCBO?” Baldwin tells Yahoo Finance Canada on Tuesday. “We feel very confident that we can produce a beer for a buck at a high quality standard and that’s what we’re going to do.”

The “Barley Days Loonie Lager” will have the same core ingredients as all of the other brewery’s beers says Baldwin, and their end goal is to make sure the product is available for Ontarians by August 27, the day the plan is to come into effect across the province.

Incentives like featured in-store displays and LCBO advertising drove Baldwin to sign on, so too is his desire to “create affordable beer for everyone including the locals.” Trade moves such as the U.S.’s issuing of aluminum tariffs was not a grave concern when asked and did not affect his decision to get involved in the buck-a-beer plan. However, Baldwin’s decision was made prior to the enactment of the tariffs in July.

“We’ve made sure we’ve positioned ourselves for the short term and right now the tariffs have not affected business,” says Baldwin. “It seems kind of redundant to put a tariff on something that they’re [the U.S.] buying in the first place, that’s why I personally don’t think it’s going to be as big of an issue as everyone says it is going to be, but that’s my personal opinion.”

Matthew Stewart, director of national forecast at the Conference Board of Canada, tells Yahoo Canada Finance that aluminum is only a small portion of a brewer’s input costs so he sees minimal impact to a brewer’s core business.

“Of all the costs that a brewery pays it’s only about 3.5 per cent of their total expenditures so it’s not nothing, they do pay a significant portion for aluminum cans, but it’s not their biggest expenditure,” says Stewart. “Even if brewers were paying the increased price it’s only going to add a little bit onto the cost of a case of beer.”

‘Not something we’re remotely interested in’

The cost of aluminum seems more significant to Troy Burtch of the 31-year-old Great Lakes Brewery–one of the breweries that was quick to refuse participating in the buck-a-beer challenge.

“Since July 1, we’re aware of the effect aluminum tariffs could have. If we get up to 10 tractor-trailer loads of cans coming in from the U.S. a month, that’s upwards of $26,000 in additional costs that wasn’t there before July 1,” says Burtch. “This along with the increase in water pricing and fluctuation of seasons…to sit back and sell a beer at a price point around that mark is just not in the interest of our business ethos and other than speaking about not doing it, it’s not something we’re remotely interested in taking a look at.”

“99 per cent of the beers we produce here in Etobicoke remain in the province and that’s something we take great pride in,” he adds. “We would never compromise quality to make a quick buck, no pun intended.”

University of Toronto economics professor, Dwayne Benjamin says aluminum tariffs on cans for microbreweries and breweries of Ontario are “genuine policy threats to the rest of us who drink the better beer” and “the tariffs are high enough that small, fledging breweries could go out of business.”

Benjamin says because of the tariffs more breweries may also start looking to alternatives like bottled beer.

“The really cheap beers are sold by the bottle anyway. With higher aluminum can prices, I think you’ll see more beer in bottles, or at least brewers considering switching production to bottles, as it’s convenient,” says Benjamin.

Burtch echoes this sentiment saying Great Lakes Brewery is looking at production costs of bottled beer moving forward.

But some companies are opting for the exemption route instead.

U.S. beverage can manufacturer Alcoa (AA), who filed five applications for one-year exclusions from tariffs on imported items that are of “primary aluminum alloyed slab” on Monday, argues there’s no domestic competitor to them so they should be exempt from tariffs.

“The U.S. and the manufacturers who are importing say ‘Oh we should get an exemption because there’s no domestic competitor for this particular product or this particular type of aluminum,” explains Stewart. “If they can show that’s the case and no one disagrees with them, then they can get an exemption on the tariffs.”

Stewart says a “significant number” of companies have applied for exemption, but he explains that because Canada has a lot of domestic aluminum production, many companies (such as breweries) are going to be able to avoid tariffs. He also points to recent Stats Canada findings, which look at the effect of the aluminum tariffs thus far.

“According to Stats Canada data, the price of aluminum did fall following the added tariffs, but only slightly,” notes Stewart.

“Canada is a huge producer of aluminum and with the tariffs from the United States, I think it’s actually lowering the price in Canada, so we end up having an excess surplus of aluminum in Canada, which is pushing prices down.”

However, Stewart says it’s still too soon to tell the effect of aluminum tariffs as we only have one month of data and have still yet to see the findings following Canada’s retaliatory tariffs.

“In another month we’ll see the data on the Canadian retaliatory tariffs and the impact of that, and then we’ll have a better idea of the price impact,” states Stewart. “A lot of the supply chains are so integrated it’s hard to track exactly where these things are produced. So items will cross the border and then cross back at different stages of production and you’ll see this across a number of manufacturing industries, so if that’s the case, the tariffs and retaliatory tariffs could drive up their price.”